14Up or down?When asked about the specter of "deflation," a topic on many people's minds, Baldwin wants to be clear that he does not seek to predict the future. But he acknowledges that "there are always two sides to any trade" and that this index allows people to look at both, depending on their outlook."Any view of inflation-whether it's going up or down or staying put-has its adherents. Our clients use this index because it's designed to accurately measure any given trajectory."Since they were introduced in 1997, TIPS have emerged as the single-most accurate reflection of the markets' inflation expectations. They replaced traditional indicators such as gold, which has its own supply and demand quirks that may have little to do with inflation. But because TIPS have coupons, their prices also track broader nominal interest rate movements. This is a limitation this index is constructed to overcome."The breakeven index attempts to minimize any interest-rate risk. Its primary driver is inflation expectation as embodied by trading on Treasurys and TIPS."The power of inflationDevelopment of the Dow Jones Credit Suisse Breakeven Indexes is a response to the importance of investors having efficient and accurate ways of measuring the effects of inflation expectations in their portfolios. "Inflation has an enormous impact on fixed-income investments, the economy and individuals, especially anyone on a fixed income. It eats away at investments just as it eats away at savings, which affects purchasing power. That's why inflation is always a factor. Always," Baldwin emphasizes."There's a huge stream of market, corporate and political news that affects inflation expectations, and investors need a product that accurately boils all of these factors into a single index. That's the need we set out to fulfill, and I believe we accomplished it."For more information on the Dow Jones Credit Suisse Inflation Breakeven IndexesSM, visit: >> www.djindexes.com/inflationindexes"The breakeven index attempts to minimize any interest-rate risk. Its primary driver is inflation expectation as embodied by trading on Treasurys and TIPS."

15Specialty CornerA New Perspective on Emerging Markets: Dow Jones BBVA EAGLEs IndexesSMIn September 2011, Dow Jones Indexes and BBVA together launched a unique series of emerging-market indexes called the Dow Jones BBVA EAGLEs Indexes. For this issue of Insights, we spoke with Alicia Garcia-Herrero, Chief Economist for Emerging Markets for BBVA about the "EAGLEs" concept that her firm developed.Insights: Can tell us how your team came up with the "EAGLEs" concept? Garcia-Herrero: The idea behind this was actually very simple. Emerging markets (EM) have been leading world economic growth in the last 20 years, and this trend is expected to continue-and even accelerate-in the current decade. Until now what people used to have in mind when talking about EM was the BRICs (Brazil, Russia, India, China). But this is too narrow a group given the sheer importance of other emerging markets. That's why BBVA took a radically different approach when coming up with our concept: the emerging and growth-leading economies (EAGLEs). We wanted a really dynamic approach that would follow a number of key themes: objectiveness and rigor in the choice of countries. In addition, we wanted an equally dynamic means of updating economic prospects worldwide without being stuck with a pre-determined group of countries.When you take a look at the 41 other countries that we consider to be emerging markets (excluding the BRICs), you realize that their current size is slightly larger than that of the G7 economies, excluding the United States. So we decided to give this group (Canada, Italy, France, Germany, Japan, United Kingdom) the name "G6." But this is just looking at the past, and what matters for investors is the future. In the next 10 years, the expected contribution to global growth of these 41 economies is expected to be three times larger than the expected contribution by the G6 group, which we use as a benchmark (Editor's note: Supporting data can be found in BBVA's 2012 Annual Report, available at www.bbvaeagles.com).Insights: What are the key factors that go into selecting EAGLEs economies?Garcia-Herrero: BBVA uses a set of four criteria to identify the EAGLEs:1 Country's expected contribution to global growth in the future, rather than its economic size. Size is not the only factor when you're trying to identify the most interesting opportunities. What you want is a mix between critical mass and dynamism. This is why BBVA focuses on incremental GDP-the change in the GDP as compared to that of the rest of the world (i.e., contribution to global growth).2 Time horizon. When making an investment, investors consider a relevant period of time. So far, the identification of key emerging countries-including the BRICs-has been based on projections over several decades. BBVA considers that kind of analysis more of a futuristic exercise than one based on fundamentals. So we look at things a year at a time and then form a 10-year outlook.3 Dynamic concept. When making forecasts, uncertainty is a key issue to be considered. Economies are constantly suffering from positive or negative shocks. These lead to over- or under-performance compared with our original Alicia Garcia-HerreroChief Economist for Emerging Markets, BBVA